Monthly Review January 2022
Most markets in the region registered gains. The best performing regional indices were Thailand (+5.67%), Korea (+4.88%) and Taiwan (+4.54%), while the laggards were Hang Seng China Enterprise shares (-1.58%), Philippines (-1.09%), and Hang Seng Index (-0.33%). Most currencies in the region weakened against the USD. The best performing currencies were Philippines Peso (+1.21%) and Korean Won (+0.50 %).
For the month of December 2021, the MSCI Far East ex-Japan Index gained 0.81%, lagging the MSCI World Index’s 4.19% gain.
Major indices in the US were up: Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite gained 5.38%, 4.36% and 0.69% respectively. Risk assets continued to gain on light volume towards year-end. The current corporate strength and the prospect of further potential earnings growth in 2022 continued to provide optimism for investors to outweigh the risk factors. However, the recent fall in December flash services purchasing managers’ indices (PMIs) in the US provided an indication that the service sector is losing some of its positive momentum. The prospect of tapering and higher interest rate temporarily took a backstage.
The Stoxx Europe 600 Index gained 5.37%. In Europe, an unreliable supply of Russian gas and maintenance work on nuclear power plants led to a sharp rise in gas and electricity prices across the continent, but started to stabilize in December. Higher energy prices will continue to exert pressure on inflation rate in the region.
Hong Kong and H shares indices corrected, with Hang Seng Index and Hang Seng China Enterprises Index declining 0.33% and 1.58% respectively. China’s A shares index gained 2.24%. Ongoing concerns over China’s regulatory and policy risk and liquidity crunch in the property sector continued to weigh on offshore Chinese equities. The divergence between the performance of H shares and onshore A shares suggest overseas negative allocation into Chinese equities. The Chinese Government had been quick to provide liquidity to the system to stabilize economic activities. The People’s Bank of China announced an additional 50 bps basis cut in required reserve ratio (RRR). This is the second RRR cut in 2021 and the move is expected to release around RMB 1.2 tril of liquidity into the banking system.
South Korea’s KOSPI Index gained 4.88%. In December, inflation increased 3.7% y.o.y, slowing down from a 3.8% growth in November. The December inflation marked the third consecutive month that consumer price growth exceeded 3%. Amid the escalating inflationary pressure and widening financial imbalance, the Bank of Korea maintained its position on pre-emptively tightened monetary policy, having raised interest rate in November 2021 for the second time since the pandemic began.
Taiwan’s TWSE Index gained 4.54%. Industrial production in Taiwan rose 12.19% in November for the 22nd consecutive month, according to the Ministry of Economic Affairs. Taiwan’s unemployment rate fell in November to 3.66%, the lowest level since 2001. It was the fifth consecutive month to month drop month to month. Economic activities remained buoyant.
Singapore’s STI gained 2.71%. Singapore’s manufacturing production grew by 14.6% y.o.y in November, slowing from an upwardly revised 17.0% jump in October. This was the second straight month of expansion in industrial output, amid moderating COVID-19 restrictions. On a monthly basis, manufacturing output unexpectedly rose by 2.3%, beating estimates of a 0.4% fall.
Malaysia’s KLCI gained 3.54%. Manufacturing PMI improved in December to 52.8 compared to 52.3 in November. The latest reading is representative of a solid expansion in manufacturing production, as the survey pointed to a broad recovery from the impact of COVID-19. Manufacturing output rose for the third month running. The pace of expansion was moderate however, but it was the quickest since April.
Thailand’s SET Index gained 5.67%. Thailand’s exports rose more than expected in November from a year earlier, helped by stronger global demand and a relatively weak THB. Exports, a key driver of the country’s growth, increased 24.7% in November from a year earlier, beating forecasts for a rise of 18.0% in a Reuters poll, and against October’s 17.4% rise.
The Jakarta Composite Index gained 0.73%. Indonesia’s Manufacturing PMI remained healthy at 53.5 in December, compared to 53.9 in November. Indonesia’s trade surplus fell to a five-month low of USD3.5bn in November on accelerating imports (+18.6% m.o.m) and slower gains in exports (+3.7% m.o.m). Import gains were broad-based across consumption goods, capital goods and raw materials, suggesting that the domestic demand recovery is broadening. Indonesia’s current account is poised to slip into a deficit in 2022 as domestic demand lifts imports against slowing exports due to easing commodity prices.
The Philippines PSE Index dropped 1.09%. December manufacturing PMI improved marginally to 51.8 from 51.7 in the previous month. Philippine’s trade deficit widened to USD4.02 bil in October, wider than the USD2.05 bil shortfall recorded in the same month last year, and the USD4 bil gap in September, as merchandise import growth outpaced the growth in exports. Year to date, the trade balance has ballooned to a USD33.21 bil deficit compared to the USD20 bil deficit during the same period in 2020.
Vietnam’s VN-Index edged up 1.34%. Retail sales have increased by 1.1% y.o.y in December, reversing from a 12.2% slump in the previous month. This marked the first rise in retail trade since April, as consumption gradually recovered following acceleration in COVID-19 vaccinations, with sales of goods bouncing back (3.7% vs -5.9% in November). Services revenues continued to decline, but at lower pace: accommodation and food services (-10% vs -33.4% in November), other services (-7.2% vs -38.0%), and travel (-34.7% vs -55.9%).
We remain cautiously optimistic on risk assets on low valuation especially in Asia Ex-Japan supported by resilient corporate earnings and economic growth prospect across the globe. We are watchful of policy directions in the major economies, in particular US and China, which will have major implications on the economies in general as well as on specific sectors. US policy responses will face headwinds going into 2022, in our opinion. Tapering and rate hike in 2022 will affect liquidity and increase cost of borrowing in the system. In Asia, the focus is on China’s policy responses to the liquidity crunch in the property sector. Chinese authority has act decisively to stabilize the economy with liquidity injection.
Headwind for risk assets including rising bond yields and interest rate hikes to contain inflation and relatively high commodity prices, as well as relatively high valuations in the developed markets. The geo-political issues between China and US will keep risk premium elevated at times and result in markets volatility.
We continue to take profit on selected investments on high valuation and maintaining relatively high cash level. We continue to apply our strategy of focusing on identifying fundamentally healthy companies with low valuations, low leverage, high growth, robust management and a strong track record, and adherence to our investment philosophy of “Never Fully Invest at All Times” which has served us well over the years. We are also in the midst of developing a robust ESG investment framework to meet the increasingly socially-aware demands of investors, as well as other stakeholders.
We thank you once again for your continued faith in us, and hope to remain good stewards in our endeavour to protect and grow your capital.
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